India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
The festive season (Oct-Dec) showed a weak sales volume trend in India's key markets of
Mumbai (-34% yoy), Gurgaon (-3% yoy) and Bangalore (+4% yoy). We believe that with rising
interest rates and earlier restructured debt getting due for repayment, faster asset churn seems
imperative for high debt developers.
Festive season ends on a muted note as weak sales volume trend continues
The festive season (Oct-Dec) – traditionally the best period for property markets – ended on a
muted note. Data from proprietary database ‘Prop Equity’ shows sales volume in Mumbai
continued to decline significantly - down 34% yoy in 4QCY10 - due to a steep price increase of
50% yoy (on a high base). Gurgaon’s sales volume data seems better, with Dec sales volume
rising a modest 6% yoy (but volume declined 3% in 4QCY10) despite property prices rising 24%
(up 13% in 4Q). Bangalore registered muted growth of 2% yoy in Dec sales volume (up 4% in
4QCY10), with property prices remaining flat yoy.
Asset churn remains the key for high-debt developers in an inflationary environment
We are concerned that if sales volumes continue to decline (due to a spike in property prices
coupled with rising mortgage rates) and execution remains weak, it could lead to lower-thanexpected cash flows. We expect interest rates to harden further by 25-50bp post the 25 Jan
monetary policy announcement. This could add to the liquidity pressure since developers’ loans,
earlier restructured as part of a stimulus package by the RBI, are likely to be due for repayment in
the near term (see Table 4), in our view. This is more so as banks are getting cautious in lending
to the realty sector and are unlikely to restructure further. We could see private equity (PE)
players bailing out a few developers by investing at the project level.
Maintaining Underweight (despite correction) in the absence of any positive catalysts
Despite the realty sector (BSE Real Index) underperforming the Sensex by 6% and 30% over one
month and three months, respectively, we don’t expect a near-term sector re-rating, due to the
absence of positive catalysts (uptick in sales volumes, debt reduction, favourable government
policy, etc). While Gurgaon’s sales volume performed better than Mumbai’s due to better
affordability (lower ticket sizes), we maintain Sell ratings on DLF (high debt and low asset churn)
and Unitech (execution challenges, telecom issues, etc). While Mumbai’s property market
experiences headwinds (as sales volume decline is the steepest), we continue to prefer Mumbaibased developers HDIL (redevelopment play) and Indiabulls Real Estate (attractive valuations
and low gearing) on a relative basis.
No comments:
Post a Comment